In situations where there is commercial insurance available, private companies will insure themselves against identified project risks that are transferred to them. Such insurance typically includes construction and contractor insurance, third party liability, business interruption, equipment failure, technology-related risk, and others. The cost of the insurance is estimated by the project team, based on the applicable commercial insurance premiums.
If a risk can be insured, the cost to obtain the insurance (i.e., the insurance premiums) is used to value that risk in the Shadow Bid, rather than the expected value of the outcome of the risk if it were to occur. The premiums represent the actual cost of bearing the underlying transferred risk to the PPP. In the case of the PSC, the value of these insurance premiums is also used to represent the value of these risks if they are retained by the public sector.